Income Tax Basics
Old or new tax regime: how to choose for FY 2025-26
A side-by-side way to decide between the old and new regimes, with real numbers for a ₹15 lakh salary.
By Meera Krishnan4 min read
Every year the same question lands in office group chats: old regime or new? For FY 2025-26 (AY 2026-27) the new regime is the default, and after the Budget 2025 slab changes it wins for most people. But “most” is not “all”. If you pay rent, carry a home loan and buy health cover for your parents, the old regime can still come out ahead. The only honest way to decide is to run both calculations on your own numbers.
What each regime gives you
The new regime trades deductions for lower rates. For FY 2025-26 its slabs are: nil up to ₹4 lakh, 5% from ₹4–8 lakh, 10% from ₹8–12 lakh, 15% from ₹12–16 lakh, 20% from ₹16–20 lakh, 25% from ₹20–24 lakh and 30% above ₹24 lakh. Salaried people get a ₹75,000 standard deduction, and the section 87A rebate wipes out tax entirely when taxable income is ₹12 lakh or less. Employer contributions to NPS under 80CCD(2) are still allowed, but 80C, 80D, HRA and home-loan interest on a self-occupied house are not.
The old regime keeps the higher rates for people below 60: nil up to ₹2.5 lakh, 5% from ₹2.5–5 lakh, 20% from ₹5–10 lakh and 30% above ₹10 lakh. The standard deduction is ₹50,000 and the rebate only covers taxable income up to ₹5 lakh. In return you keep the full menu: HRA, 80C up to ₹1.5 lakh, the extra ₹50,000 for NPS under 80CCD(1B), 80D for health insurance, up to ₹2 lakh of home-loan interest, 80E education-loan interest and more. Both regimes add 4% health and education cess on the final tax.
Worked example: ₹15 lakh salary
Take Ravi, 34, with a gross salary of ₹15,00,000 and no other income.
New regime. Taxable income is ₹15,00,000 − ₹75,000 = ₹14,25,000.
- ₹4–8 lakh at 5%: ₹20,000
- ₹8–12 lakh at 10%: ₹40,000
- ₹12–14.25 lakh at 15%: ₹33,750
- Tax ₹93,750 + 4% cess ₹3,750 = ₹97,500
Old regime, case A. Ravi claims HRA exemption of ₹1,50,000, 80C of ₹1,50,000, 80D of ₹25,000 and 80CCD(1B) of ₹50,000 — ₹3,75,000 in all. Taxable income is ₹15,00,000 − ₹50,000 − ₹3,75,000 = ₹10,75,000.
- ₹2.5–5 lakh at 5%: ₹12,500
- ₹5–10 lakh at 20%: ₹1,00,000
- ₹10–10.75 lakh at 30%: ₹22,500
- Tax ₹1,35,000 + cess ₹5,400 = ₹1,40,400
That is ₹42,900 more than the new regime, despite ₹3.75 lakh of deductions.
Old regime, case B. Now suppose his rent is higher (HRA exemption ₹2,00,000), he pays ₹50,000 of premium for senior-citizen parents on top of his own ₹25,000 (80D total ₹75,000), and he is repaying an education loan with ₹1,00,000 of interest under 80E. With 80C and 80CCD(1B) as before, deductions total ₹5,75,000 and taxable income is ₹8,75,000.
- ₹2.5–5 lakh at 5%: ₹12,500
- ₹5–8.75 lakh at 20%: ₹75,000
- Tax ₹87,500 + cess ₹3,500 = ₹91,000
Here the old regime saves ₹6,500.
Find your break-even
Instead of guessing, work backwards. At a ₹15 lakh salary the new regime costs ₹93,750 before cess. Under the old regime you reach that figure at a taxable income of about ₹9,06,250. Starting from ₹14,50,000 (after the ₹50,000 standard deduction), you would need more than roughly ₹5.44 lakh of deductions for the old regime to win. The higher your salary, the bigger that number gets, which is why the new regime suits so many people.
A useful rule of thumb: if your deductions are mostly 80C and a basic health policy, the new regime probably wins. Rent, a home loan and parents’ insurance together are what make the old regime competitive.
Switching rules you must know
If you have no business or professional income, you can choose a regime afresh every year, right in your return. The catch is that the old regime is only available in a return filed by the due date under section 139(1). File late and you are taxed under the new regime, whatever you planned.
If you have business or professional income — freelancers and creators included — the rules are stricter. You opt out of the new regime by filing Form 10-IEA before the due date, and you can switch back only once. Treat that as a long-term decision, not an annual one.
Telling your employer your choice at the start of the year only affects TDS. The regime you actually pay under is the one you pick in the ITR.
A five-minute way to decide
- Add up deductions you will genuinely claim: HRA, 80C, 80CCD(1B), 80D, home-loan interest, 80E.
- Compute old-regime tax on salary minus ₹50,000 minus those deductions.
- Compute new-regime tax on salary minus ₹75,000.
- Add 4% cess to both and compare.
- Do not buy an insurance policy or ELSS units just to “use up” 80C if the new regime still wins.
From 1 April 2026 the Income-tax Act, 2025 replaces the 1961 Act and renumbers these sections, but the logic of comparing the two regimes stays the same.
General information, not tax advice. Rules change, so check the latest rules or speak to a CA before you act.